Protests Keep Spotlight on IMF and World Bank Failures

PRAGUE, September 25-- With thousands of people converging from throughout Europe to demonstrate against the IMF and World Bank at their annual meetings, many people here in Prague are wondering what all the fuss is about. Security is tight, and residents are being told to stay home and off the streets. Czech police in their blue and gray polyester uniforms dot every corner, an unusual sight in a city where the streets are safe and people generally are not even arrested for minor drug offenses. Many Europeans who traveled here to participate in the events surrounding the meetings have been turned away at the border, and permits for peaceful marches have been denied.

The threat of violence has been grossly exaggerated by the authorities for their own purposes; as in the Washington DC demonstrations last April, the organizers and protesters are committed to non-violence. The real danger is that of embarrassment for the IMF and the Bank. They are fighting to preserve their legitimacy, which has been badly damaged over the last three years.

For half a century hardly anyone even knew these institutions existed, and they operated in the shadows. Those days are over, although many of their most important documents and deliberations remain secret.

The Fund and the Bank operate a cartel for credit, much like OPEC runs an oil cartel. Neither one is leak-proof, but they both confer considerable power on the men who control them. While OPEC uses its monopoly power simply to raise oil prices, these financial giants use theirs to influence and often dictate the economic policies of dozens of countries.

The IMF is the leader, and a country that falls out of its favor will not be eligible for most credit from the larger World Bank, other multilateral lending institutions, governments, and often private sources of credit as well. This arrangement gives the Fund (together with the Bank) powers vastly greater than they could ever derive from their own resources.

Power is even more concentrated in that the IMF is basically controlled by the US Treasury Department. This fact illustrates what dinosaurs these institutions really are. If the IMF did not exist, nothing like it could be created today. At the very least the Europeans and Japanese would demand to have their say, as they do in the WTO (which was created only five years ago); and the underdeveloped countries, who are even more excluded from decision-making than Europe and Japan, would demand a voice in shaping the policies that now victimize them.

To illustrate IMF policies with an example close to home: the United States is now running a record current account deficit. (The current account measures foreign trade plus other non-investment international transactions). At 4.5 percent of our economy, this deficit is as big as the one that Brazil was running three years ago when the IMF proposed an austerity policy as a loan condition. If we were an IMF client, we would get rid of our trade deficit in the following manner: the Fed would raise interest rates as high as necessary in order to throw the economy into a recession. Our economy would shrink as borrowing for housing and other large purchases dropped, people were thrown out of work, and businesses cut back on their investment. As spending plummeted, so would the purchase of imports, and our trade balance would improve.

Joseph Stiglitz, former chief economist at the World Bank and a likely candidate for a future Nobel, has called this a "beggar thyself"-- as opposed to "beggar thy neighbor"-- policy for getting rid of a trade deficit. He resigned under pressure last year after criticizing these and other policies that have caused enormous economic damage in countries such as Indonesia, Russia, and Brazil in recent years.

Because IMF and World Bank policies have failed so miserably and so often, and because these organizations are so completely unaccountable and anti-democratic, they have few defenders outside of a narrow foreign policy elite. And their opposition is growing by leaps and bounds. In addition to the protests here in Prague, there will be demonstrations in 60 U.S. cities, backed by the 15 million-member AFL-CIO. Organized labor has increasingly come to see these institutions as major adversaries, since they use their creditors' cartel to enforce the global "race to the bottom" in wages and working conditions that has hurt American workers as well.

Two weeks ago the Communications Workers of America took the unprecedented step of pledging to not buy World Bank bonds, joining a worldwide movement to use the pension funds of unions, churches, local governments, and universities to bring pressure on the Bank.

The street heat is working. As the protesters like to chant, "This is what democracy looks like."